Economic culture matters

Economics is a very technical subject, but it’s also a human enterprise, which means that people and their values and their behaviors – that is, culture and ethics – underlie everything.

The New York Times has an interesting article on how Norway has avoided much of the world’s economic meltdown.

First off, the country is okay because it’s a petro-state (in fact, the world’s third-largest exporter of oil, which I didn’t realize).

But there’s a cultural dimension to it’s situation, too:

Instead of spending its riches lavishly, it passed legislation ensuring that oil revenue went straight into its sovereign wealth fund, state money that is used to make investments around the world. Now its sovereign wealth fund is close to being the largest in the world, despite losing 23 percent last year because of investments that declined.

Norway’s relative frugality stands in stark contrast to Britain, which spent most of its North Sea oil revenue — and more — during the boom years. Government spending rose to 47 percent of G.D.P., from 42 percent in 2003. By comparison, public spending in Norway fell to 40 percent from 48 percent of G.D.P.

“The U.S. and the U.K. have no sense of guilt,” said Anders Aslund, an expert on Scandinavia at the Peterson Institute for International Economics in Washington. “But in Norway, there is instead a sense of virtue. If you are given a lot, you have a responsibility.”

Eirik Wekre, an economist who writes thrillers in his spare time, describes Norwegians’ feelings about debt this way: “We cannot spend this money now; it would be stealing from future generations.”

Mr. Wekre, who paid for his house and car with cash, attributes this broad consensus to as the country’s iconoclasm. “The strongest man is he who stands alone in the world,” he said, quoting Norwegian playwright Henrik Ibsen.

Technical economic policies and factors are important, but they are always rooted in how we approach the world. For example, a market economy cannot function without a certain level of trust – trust in people, leaders, institutions, money, etc. And trust is created and destroyed by our interactions with one another.

Even the partner of the Warren Buffet (the second richest guy in the world, remember) emphasizes values as an economic condition (hat tip to Yves Smith at Naked Capitalism):

How and why do you think economists have gotten this so wrong?

I would argue that the economists have not been all that good at working concepts of good and evil into their profession. Nor do they understand, at all well, the economic consequences of bad accounting.

In fact, they’ve made a profession of driving value judgments out of the subject.

Yes. They say it’s not economics if you think about the consequences of good and evil, and good and bad business accounting. I think what we’re learning is that when you don’t understand these consequences, you don’t have an adequately skilled profession. You have big gaps in what you need. You have a profession that’s like the man that Nietzsche ridiculed because he had a lame leg and was very proud of it. The economics profession has been proud of its lame leg.